here's a question from FRM level 2 2013.

1-year zero-coupon bond with face value 1mil, and 0% recovery rate issued by company A. Bond is currently trading at 80% of its face value. Assuming excess spread only captures credit risk and that the risk-free rate is 5% per annum, the risk neutral 1-year probability of default on company A is closest to which?

a. 2

b. 14

c. 16

d. 20

I put the formula spread = - [ -(1/t) * (ln(current debt value/face value))] - risk-free rate and get 17.3%

but the answer is given as c thru a strange formula namely, 1+r = (1 - PD) * (1 + y) - (1 - PD) * (Face value / market value)

Thanks